When will a demotion amount to a dismissal?
In Sherriff v Veolia Environmental Services (Australia) Pty Ltd (2015) FWC 6876 delivered 8 October 2015 per O’Callaghan SDP, the Fair Work Commission in an unfair dismissal case was required, as a fundamental jurisdictional issue, to determine whether an employee, who simply refused to accept a demotion, and who did not return to work after it, had been dismissed even though his employer had not actually terminated his employment.
“The plain words of s.386(2)(c) must be construed such that a demotion in employment can only constitute dismissal for the purposes of Division 3 of Part 3-2 of the FW Act if the employee does not remain employed by that employer and the demotion involves either a significant reduction in the employee’s remuneration or duties. This section of the FW Act does not provide that a reduction in either duties or remuneration is sufficient, of itself, to constitute a dismissal. A mandatory requirement is that the employee no longer remains employed. That approach is consistent with the approach in the Full Bench decision in Barkla v G4S Custodial Services Pty Ltd (2011) FWAFB 3769.
Notwithstanding this, it is clear that various decisions have dealt with circumstances where the employer has made a unilateral change to the employment arrangement which amounts to a repudiation of the employment contract. In Lollback v University of Southern Queensland (2014) FWC 2011 Gooley DP considered whether a demotion represented termination of employment with particular reference to the extent to which the demotion in that circumstance was properly described as the termination at the initiative of the employer, notwithstanding that the employment relationship continued. In that matter the Deputy President had regard to various other authorities in reaching a conclusion about whether the applicable enterprise agreement authorised the demotion. Having concluded that the provisions of the applicable agreement which dealt with demotion could not be considered to be unlawful terms, the Deputy President then concluded that the demotion in that instance was not a termination of employment. Whilst those circumstances differ somewhat from Mr Sherriff’s circumstances, the Full Bench decision in Charlton v Eastern Australian Airlines Pty Ltd4 provides some further insight. I note that this decision was reached under a significantly different legislative regime which at that time specifically incorporated a reference to the Termination of Employment Convention. In that matter the Full Bench addressed the history of the provision now known as s.386(2)(c). The Full Bench stated:
“Consistent with the decision in Boo Hwa Chan, a termination of employment occurs when a contract of employment is terminated. This necessarily occurs when the employment relationship comes to an end. However, it can also occur even though the employment relationship continues. Where a contract of employment has been terminated, but the employment relationship continues, this will be because a new contract of employment has come into existence. Therefore, whether the appellant’s demotion involved his employment being “terminated by the employer” within the meaning of s.170CE turns on whether his contract of employment was terminated notwithstanding the continuing employment relationship. This question is answered by reference to general law principles relating to the termination of contracts of employment, unconstrained by the Convention.
The question of when a demotion constitutes a termination of employment within general law principles relating to termination of contracts of employment, unconstrained by the Convention, was given careful consideration by the Full Court of the Supreme Court of South Australia in Advertiser Newspapers Pty Ltd v IRC & Grivell. We respectfully adopt that analysis. Although the decision related to a different statutory context, that context required a consideration of general law principles that are equally applicable in the present case.
Unless the contract of employment or an applicable award or certified/workplace agreement authorises an employer to demote an employee, a demotion, not agreed to by the employee, that involves a significant reduction in remuneration will amount to a repudiation of the contract of employment. If that repudiation is accepted, either expressly or by conduct, then the contract of employment is terminated. If, in such circumstances, the demoted employee then remains in employment with the employer, this occurs pursuant to a new contract of employment in respect of the demoted position. It may be noted that where the employment continues with the employee allegedly acquiescing in a reduction in salary or other terms of employment, difficult questions may arise as to whether the continued employment involves the continuation of the original contract of employment (but with the employer breaching that contract by paying the reduced salary), a consensual variation of the terms of the original contract or the termination of the original contract and a substitution of a new contract of employment.”